S.Africa cbank holds rates despite sluggish growth

By Stella Mapenzauswa

PRETORIA (Reuters) - South Africa's Reserve Bank left its repo rate at 6.5 percent as expected on Thursday despite a fragile recovery after last year's recession and as high wage deals threatened the inflation outlook.

Governor Gill Marcus said while the recovery in the domestic economy had continued, indications were that growth in the second quarter was likely to have been less favourable.

The risk to the inflation outlook was evenly balanced, although the main upside risk to the inflation outlook continued to come from wage demands close to double-digits.

"The monetary policy committee assesses the risk to the inflation outlook as being evenly balanced and views the current monetary policy stance as appropriate," Marcus said at a press conference broadcast live on television.

Sixteen out of 21 economists polled by Reuters last week saw the central bank leaving rates unchanged, while five forecast a further 50 basis point cut to 6.0 percent to help boost growth.

But the repo rate is already at its lowest in three decades, and some analysts said the central bank might want to allow more time for the 550 basis points of cuts implemented from December 2008 to March this year to work through the system.

"I'm very glad that even though there are a lot of mixed signals in the economy at the moment, it did not sway the MPC (monetary policy committee) to decide on a rate cut," said Efficient Group economist Merina Willemse.

"We have had all the stimulus that we need. For now, I think if the economy continues on this growth path we won't see another cut."